A discount to employees off of their contribution toward health care,

[Guest Charlie Stevens]

A client is considering a policy in which non-smokers pay less for health care than smokers. I am interested in the experiences of other employers that have done this and possibly some sample policies. One element of interest is how "smoking" is defined. Antother is how to police the program where an employee claims to be a smoker but it appears that he is smoking. Any help would be appreciated.

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Charlie Stevens

Michael Best & Friedrich LLP

[Guest ScottN]

I don't have experience with this (my home state does not allow it for groups with 50 or fewer employees) but another issue comes to mind. What if the employee was a non-smoker at the time he or she signed the enrollment form/application but began smoking after that time?

[Greg Judd]

I implemented a non-smoker discount plan as a benefits manager for a 3,000 employee firm about 10 years ago. We used the honor system; employees self-identified their smoking status, which was more accurately a tobacco use status--ANY amount of regular weekly use, as I recall, qualified one as a smoker (I may be able to retrieve the details if it's critical).

We assumed employees would underreport their status; we figured about 5-10% of the total population would say they smoked, calculating that more like 40% did in fact use tobacco regularly. We found instead that people have a heap of integrity; the final count was around 35% smokers.

We took pains to provide lots of information about the large body of evidence correlating smoking and higher medical treatment costs (even admitting that some studies had produced evidence to the effect that smoking LOWERED total long-term health costs because smokers expired more quickly, hence consumed less total healthcare services). They understood what we were trying to accomplish--the discount did not amount to a crushing sum--and we felt they appreciated our simultaneous sponsorship of smoking cessation programs, including a modest 'open' subsidy of virtually any cessation program employees completed with documentation (unfortunately, few takers on that part of the plan).

Naturally, employees felt strongly about the issue--in all directions. Smokers were among the plan's proponents; some felt it would be just the incentive they needed to cut down or stop smoking. Some nonsmokers felt we were a) neglecting to give discounts for other deserving habits [teetotalling, running 15 miles/week] or b) going too far in invading people's privacy, tho a few came around when they understood that if smoking increased health costs, it affected everyone in the plan (this was still the era of double-digit annual healthcost increases, and our claims data suggested smokers' claims were disproportionately high for our covered group).

We intentionally used this issue as a fulcrum for managing other controversial issues; we were just introducing smoke-free workplace rules, and the dialogue enabled us to make sensible modification in the way these policies were communicated and 'owned' by everyone--not just us benefits bureaucrats. It helped us come up with ways of making policy that a) had clear intent b) was not introducing 'smoking police'c)was a living, dynamic thing--not edicts tossed over the cubicle wall or hidden away in a 3-ring binder.

In summary, I believe that, if the stage is set well, this kind of program can deliver real value to participants, the plan, and the plan's sponsor, beyond the issue of smoking & benefits costs. The goal after all is not to exact punishment on individual employees, but to motivate behavior change across the population. Be aware of the specifics, but on this one, preserve the spirit more vigorously than the 'law'.

[This message has been edited by Greg Judd (edited 08-04-99).]

[Kirk Maldonado]

Watch out for a possible ADA violation.

[Sheila K]

I know that some companies have completely banned smoking anywhere on their premises, including the employee's car in the parking lot. Does anyone have any experience in this area???

Also, I would think that with the recent court decisions regarding ADA that smoking would not be an ADA concern...???

Sheila K

[KIP KRAUS]

I'm not sure that an employer can show a their medical claims cost are higher for smokers vs. nonsmokers. If they can't, why reduce the non-smoker's premium costs? While it is widely known that the long term effects of smoking is bad for your health, each individul employer's experience with this health risk would be different. I think you will find that most effects of smoking are at the end of a long period of a person's smoking for years. If your work force is relatively young, you probably wont' see a disproportionate effect in your healthand absentism costs. I would do the research and see what the effects are before going for a touchy-feely reduction in non-smoker premiums. Just me slanted point of view.

direct correlation of claims between cost of medical claims and smoking or non-smoking, and from that

[Linda]

It may turn out to be an issue under the nondiscimination rule of HIPAA. In the preamble to the HIPAA regs., IRS/DOL/HHS asked for comments on discounts for nonsmokers.

[Greg Judd]

I generally second Kip's recommendation to "do the research and see what the effects are before going for a touchy-feely reduction in non-smoker premiums". It's not something to introduce just because you feel it's the right thing to do. Fortunately, there's quite a store of evidence for the correlation between smoking & higher health claims (ok, ok, I admit, correlation isn't causation. Just let me finish.)Employers who are self-funding and actively manage their plans--which means getting and using responsible access to claims data--can, with information about employees' smoking habits, determine if there's a correlation between smoking and above average health claims. Several employers have examined this issue over the years (Control Data was one of the first firms to do so, I believe, at least a decade ago), as have academic studies, and the results have generally demonstrated a positive correlation. On reflection, it's not hard to understand why--and also why experts would caution that ADA issues, or claims of discrimination along other collateral lines, might arise. Smoking correlates with other socioeconomic circumstances that comprise a policy powderkeg for anyone who would engage in social engineering. Benefits professionals are in the behavior change/social engineering business; plan design is about encouraging some behaviors over others. Where things get complicated is the area between the behaviors I'm allowed to try to modify and individual liberties.

But that's the context for all sorts of business decisions, every working day.